Stock Price Reactions to Merger Announcements:Evidence from Istanbul Stock Exchange (ISE)

Berna Kirkulak-Uludag and Ozlem Demirkaplan Gulbudak

Istanbul Stock Exchange Review, 2011, vol. 12, issue 47, 19-42

Abstract: The stock price performances of the ISE listed non-financial firms are examined before and after the merger announcements by employing cumulative average abnormal returns (CAARs) from 1997 to 2006. In Turkey, merger and acquisitions (M&As) intensified in particular after the 2001 financial crisis. Consistent with the previous studies, the findings suggest that the stock prices prior to merger announcements are likely to increase. However, this positive effect disappears following the merger announcements and the post-merger stocks underperform in the long-run. Investors’ sentiment (optimism) explains the post-merger underperformance anomaly. Furthermore, a benchmark of control firms is constructed according to size and growth potential. The findings reveal the fact that bidding firms perform better than non-merged firms in the long-run.

Date: 2011
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